Highmark's small-business hikes blasted
Health insurance giant Highmark Inc. this summer moved small-business customers to a for-profit subsidiary to evade regulatory scrutiny, then substantially raised premiums up to 79 percent, the state's top insurance regulator charged Tuesday.
Highmark countered that 70 percent of its small-group members in Pennsylvania received rate increases of 10 percent or less and that the moves were defensive. Highmark said that if had not taken action to operate its for-profit competitors do, it would have been forced to quit providing health insurance to small businesses.
Highmark's actions come as small businesses nationwide prepare to take advantage of a new federal tax credit, effective this tax year, extended to companies who offer employees health insurance. A just-released study found that 160,700 small businesses in Pennsylvania are eligible.
Testifying yesterday before the House Insurance and House Democratic Policy committees, state Insurance Commissioner Joe Ario said that even though his organization has no authority over Highmark's for-profit HM Health Insurance Co., it still investigates all complaints.
"The department received 32 complaints from small employers receiving increases up to 79 percent upon their renewal quotes," Ario said in written testimony. "This is the single largest number of complaints received by the department against a carrier dealing with renewal quotes."
The hearing was held in William E. Anderson Library in Penn Hills.
Ario said the reason that Highmark made the switch was simple. "Highmark wanted to get out of rate regulation so they could avoid regulatory scrutiny," he said in an e-mail.
Ario said 45 percent of all employer complaints investigated this year by the department involved Highmark and that the insurer had more than twice as many complaints as any other insurer.
James Fawcett, Highmark's senior vice president, small group and individual markets, said his company for seven years has urged the state Legislature to reform small-business health care rules, to level the playing field.
"To a large extent, the larger rate increases -- less than 5 percent of our small-business customers -- were the result of a change we made in July in the way we offered small-group insurance products, to operate under the same set of regulatory rules as other insurance companies," Fawcett said in testimony.
He was referring to the state's for-profit health insurers, the largest of which include Aetna; HealthAmerica, a subsidiary of Coventry Health Care; and United Healthcare. Highmark in 2008 had a 24.5 percent market share, according to state figures, second only to another nonprofit, Philadelphia's Independence Blue Cross, which had a 30.6 percent market share.
Between 2007 and 2009, Highmark lost 64,000 in-state small-business customers, reducing its total to 269,000, primarily because of the recession, said spokesman Michael Weinstein.
Fawcett said the changes that Highmark made -- including the move to a for-profit organization -- will allow the company to compete fairly against for-profits "that currently have virtually no rate regulation on how they price their insurance products for small companies."
Small-businessman Jay Snyder, a certified public accountant in Wilkins, testified yesterday that Highmark's premium ending June 30 of next year will have risen by more than 96 percent.
"My accounting practice is in a competitive business environment. I have not increased -- let alone doubled -- my fees over the last four years," Snyder said in testimony.
A report issued yesterday by the consumer health organization Families USA and small-business advocate Small Business Majority shows that more than 4 million small businesses nationwide -- including 160,700 in Pennsylvania -- are eligible for a tax credit based on the premiums paid for employee health insurance. The credits last until 2014, when state-operated insurance exchanges for small businesses and individuals are scheduled to be operating.
Data show that in 2009, just 46 percent of companies with fewer than 10 employees were offering health insurance to employees, while 72 percent of small companies with between 10 and 24 workers were offering coverage.
"Small businesses don't have the economies of scale and no bargaining leverage with insurers that large employers have," said Ron Pollack, executive director of Washington-based Families USA.
Companies with fewer than 25 employees and average wages of less than $50,000 will be eligible for a tax credit. Companies with 10 or fewer employees and average wages of less than $25,000 are eligible for the full 35 percent tax credit.
"The credits offer no downside to small businesses," said John Arensmeyer, CEO of Small Business Majority.